Operations and Supply Chain Management The Core

STRATEGIC CAPACITY MANAGEMENT chapter 4 123
SOLVED PROBLEM 2
Boeing Aircraft collected the following cost data on the first eight units of their new business jet:
UNIT NUMBER COST ($ MILLIONS) UNIT NUMBER COST ($ MILLIONS)
1 $100 5 $60
2 83 6 57
3 73 7 53
4 62 8 51
Excel:
Learning
Curves
a. Estimate the learning curve for the new business jet.
b. Estimate the average cost for the first 1,000 units of the jet.
c. Estimate the cost to produce the 1,000th jet.
Solution
a. First, estimate the learning curve rate by calculating the average learning rate with each
doubling of production.
Units 1 to 2 = 83/100 = 83%
Units 2 to 4 = 62/83 = 74.7%
​
Units 4 to 8 = 51/62 = 82.3% ​
Average = (83 + 74.7 + 82.3)/3 = 80%
b. The average cost of the first 1,000 units can be estimated using Exhibit 4A.6. The cumulative
improvement factor for the 1,000th unit at 80 percent learning is 158.7. The cost to
produce the first 1,000 units is
​$100M × 158.7 = $15,870M​
The average cost for each of the first 1,000 units is
​$15,870M/1,000 = $15.9M​
c. To estimate the cost to produce the 1,000th unit, use Exhibit 4A.5.
The unit improvement factor for the 1,000th unit at 80 percent is 0.1082.
The cost to produce the 1,000th unit is
​$100M × 0.1082 = $10.28M​
DISCUSSION QUESTIONS
LO4A–1 1. How might the following business specialists use learning curves: accountants,
marketers, financial analysts, personnel managers, and computer programmers?
2. What relationship is there between learning curves and productivity measurement?
3. What relationship is there between learning curves and capacity analysis?
4. Do you think learning curve analysis has an application in a service business like
a restaurant? Why or why not?
LO4A–2 5. As shown in the chapter, the effect of learning in a given system eventually
flattens out over time. At that point in the life of a system, learning still exists,
though its effect continues to diminish. Beyond that point, is it impossible to
significantly reduce the time to produce a unit? What would it take to do that?
6. The learning curve phenomenon has been shown in practice to be widely
applicable. Once a company has established a learning rate for a process, they
can use it to predict future system performance. Would there be any reason to
reevaluate the process’s learning rate once it has been initially established?
7. As a manager, which learning percentage would you prefer (other things being
equal), 110 percent or 60 percent? Explain.